Subrogation & Recovery Law Blog : Insurance Subrogation Lawyer & Attorney : Cozen O'Connor Law Firm : Property Damage & Insurance Commentary

The Oregon Court of Appeals once again affirmed the viability of negligent construction claims while delivering another blow to the Economic Loss Doctrine.  In Cowan v. Nordyke, 232 Or.App. 384 (2009), plaintiff purchased a home from a Professional Home Designer (PHD).*  Of course, the home was not without problems, including water intrusion.  Plaintiff filed suit against the PHD claiming negligent design of the home and that the PHD's conduct fell below the standard of care for a reasonably prudent professional home designer.  The PHD’s motion for summary judgment was granted as Oregon does not recognize a tort for "professional negligence" by a PHD.  After attempts to amend the complaint to allege general negligence proved unsuccessful, plaintiff filed an appeal. 
While the Oregon Court of Appeals affirmed that Oregon does not recognize "professional negligence" by a PHD, it reversed on the issue of allowing a claim against a PHD for general negligence. In reaching its decision, the Court explained that Oregon deviates from traditional negligence concepts of "duty, breach and causation."  In Oregon, liability rests on whether the defendant's conduct unreasonably created a foreseeable risk of harm to the plaintiff.  Foreseeability applies unless the parties invoke a "status, relationship, or particular standard of conduct that limits the defendant's duty."  Here, the PHD argued that the foreseeability standard did not apply because its duty to plaintiff was defined and limited by its status as an unlicensed contractor and an "owner builder," rather than a "builder-vendor."  The PHD further contended that there were adequate contractual protections for plaintiff and that it need only disclose that it built the house and to disclose known defects.  The court was not swayed and correctly held that that being an unlicensed contractor did not provide a shield to limit liability.  The Court reasoned that a jury can determine whether damages sustained by a plaintiff are reasonably foreseeable.  With regard to contractual protections and the disclosure of defects, the Court agreed that the required disclosure might provide sufficient protection for known defects.  However, the Court recognized that not all latent defects "come to light" while the builder occupies the home.  Therefore contractual disclosure is not an adequate substitute for holding a builder liable under the general negligence standard.

Oregon continues to recognize negligent construction claims grounded in general negligence.  As Oregon continues to recognize negligence in this context, it further erodes the Economic Loss Doctrine.  See also Bunnell v. Dalton Construction, Inc. (2006 (water damage to interior not economic loss) and Harris v. Suniga (2006) (damage to physical structures is not economic loss).
____________________________________________________________________________________________
* A Professional Building Designer specializes in designing light-frame buildings such as single family homes and agricultural buildings.  Unlike architects, Professional Building Designers are not legally required to pass exams or receive special licenses. 

• Email This
• Print
• Comments
• Trackbacks

The Economic Loss Doctrine may bar tort claims when a defective product causes injury only to the product itself and not to other property or persons. In many jurisdictions there are exceptions to the doctrine, including when the damage is caused by a “sudden calamitous event.”Recently, the Supreme Court of Tennessee considered the application of this exception.

In Lincoln General Ins. Co. v. Detroit Diesel Corp., a bus caught fire due to an allegedly defective engine. The fire did not cause personal injuries or property damage to anything other than the bus. The subrogating insurer argued that the economic loss doctrine should not bar a products liability claim because the harm was caused by a “sudden calamitous event.” The court rejected the exception, instead following a “bright line rule” completely barring tort claims when a product causes damage only to itself.  The court reasoned that certain products “expose a product owner to an unreasonable risk of injury during an abrupt and disastrous occurrence" while others "merely disappoint a product owner’s expectations.”  The court explained that it would be difficult for parties and courts to apply a rule that focuses on the degree of risk and the manner in which the product was damaged, as opposed to a rule that hinges on the harm a plaintiff actually sustains.

Despite Tennessee's reluctance to carve out an exception, many states have successfully modified the application of the Economic Loss Rule by:

1. Creating component part exceptions. (California)
2. Confining the doctrine to products liability or very similar situations. (Florida);
3. Statutorily providing for new home warranty laws against construction defects.(Connecticut, Indiana, Louisiana, Maryland, Minnesota, Mississippi, New Jersey, New York, and Virginia);
4. Statutorily providing for notice and right to repair and associated actions (California, Nevada);
5. Finding that builders have a duty in tort to act without negligence in the construction of residences (Colorado, South Carolina), or
6. Recognizing exceptions, such as an independent duties (Utah, Colorado), special relationships or foreseeability of plaintiff (Alaska, Delaware, West Virginia).

The Economic Loss Doctrine varies in its application from state to state.  If you have a large loss involving a product, it is prudent to review your jurisdiction’s interpretation of the doctrine, and exceptions to the same, prior to embarking on recovery efforts.

• Email This
• Print
• Comments
• Trackbacks